Until this week China had threatened to pass American firms over for billions in government contracts if they didn't surrender their intellectual property. China's president has finally agreed to drop the policy. (Source: LIFE)

Promise comes after much fear and lobbying across multiple high-tech industries

China finds itself in a unique position in the
world today. On the one hand, it is the world's top high-tech
manufacturer, making many of the wonderful electronic devices we enjoy on a
daily basis. On the other hand, it will soon be the world's top economic
power and it is increasingly looking to make its own domestic products that are
as good or better than those from the U.S., Japan, South Korea, Europe, etc. Thetechniques
it has usedto try to achieve that goal, however, have drawn global scrutiny.

In its bid to do that, the nation proposed a
controversial plan that many feared wouldforce
companies to give up their intellectual propertyif they
wanted to compete for valuable Chinese government funding. But after much
concern, Chinese President Hu Jintao promised during a visit to Washington
this week to "delink" its procurement budget from its
"indigenous innovation" policies -- the item in question.

Top business leaders had gone to Washington a year
ago to express concerns pertaining to language in the Chinese law that said
that for "preferred" status, companies would have to provide products
based on "intellectual property that is developed and owned in China and
that any associated trademarks are originally registered in China."

The groupsstated,
"This represents an unprecedented use of domestic intellectual property as
a market-access condition and makes it nearly impossible for the products of
American companies to qualify unless they are prepared to establish Chinese
brands and transfer their research and development of new products to
China."

Similar initiatives were being conducted by China
on the provincial and municipal levels. According to John Frisbie,
president of the U.S. China Business Council, which represents more than 200
American companies that do business with China, in a recent 2009 Shanghai
catalog of innovative products of "the 530 on the list only two were made
by foreign-invested companies operating there."

China's technique thus far hasn't been
particularly effective in convincing foreign firms to come in and surrender
their IP. Thus President Obama urged China to pursue other avenues to
strengthen their high-tech status, such as research and development tax
credits.

In May U.S. officials met with Chinese officials
in Beijing to discuss the policy. Those talks led to more discussions in
December at the U.S.-China Joint Commission on Commerce and Trade office, and
then finally the visit to Washington this week. At each meeting China
slowly agreed to relax the policy a little more -- until the current state,
which offers virtually no barrier to foreign firms.

Myron Brilliant, senior vice president at the U.S.
Chamber of Commerce tellsReuters,"We hope China will make concrete changes to its
indigenous innovation regime at the central and provincial levels to live up to
this positive pledge."

Industry officials, however, remain suspicious of
China quick reversal. States Bill Reinsch, president of the National
Foreign Trade Council business group, "The thing to watch for is not them
overtly ignoring their promise, but trying to slip something else in through
the back door."

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation